What Is Arbitration?

Arbitration occurs when parties seek to resolve a legal dispute outside of the court system. They use a neutral third party called an arbitrator. Arbitration is a form of alternative dispute resolution (ADR). An arbitrator is often a retired judge or attorney.

Arbitration, like mediation, provides an alternative to filing a lawsuit and going to court. Arbitration is usually a more streamlined and cost-conscious option for dealing with a legal issue.

This article discusses when arbitration is an option, how it works, and how it differs from going to court.

When Can You Arbitrate?

Anyone can agree to arbitrate a disagreement or legal issue and resolve what would otherwise be a civil lawsuit in court. The key word is "agree." Just because one of the disputing parties wants to enter into arbitration doesn't take away another party's right to go to court. Except for court-ordered arbitration, arbitration occurs when two parties agree to it before or after a legal dispute arises. For this reason, agreements to arbitrate disputes appear in a written contract agreed to by both parties.

This doesn't mean agreements to arbitrate are rare. Consumers agree every day to resolve potential legal problems through arbitration. It happens while shopping, traveling, and engaging in other everyday transactions. For example, if online shoppers read the fine print, they may find arbitration clauses in a credit card application or a travel website. Companies often prefer alternative dispute resolution tools like arbitration over lawsuits in court.

Arbitration agreements are also common in employment contracts. Employment contracts will often require mandatory arbitration of disputes. Likewise, arbitration clauses often appear in commercial contracts. Most commercial disputes head to arbitral tribunals and not courtrooms. These arbitration agreements then fall under the terms of the Federal Arbitration Act.

How Arbitration Works

Arbitration can take many forms. In almost any arbitration, however, the complaining party will send the opposing party a notice of their intent to arbitrate a dispute. The notice will explain the basis of the dispute. There will be a period for response, followed by the selection of arbitrators, and then the hearing itself. In nonbinding arbitration, either party can reject the arbitration and go to trial.

Arbitrations are sometimes presided over by a panel of arbitrators instead of just one arbitrator. Regardless, the contract will outline the selection process. In most cases, both parties provide some input. Courts will often encourage the use of arbitration and provide explanations of the procedures on their websites.

The rules of arbitration as a dispute resolution process can vary. In many circumstances, a contract specifies the rules and timelines that apply to a dispute. These are more streamlined than a court case, but parties should refer to their agreement or the arbitration rules specified therein for the exact manner of proceeding.

Arbitration agreements often designate the National Arbitration Forum, the American Arbitration Association (AAA), or JAMS (formerly, Judicial Arbitration and Mediation Services) to handle arbitration. An attorney specializing in alternative dispute resolution can also provide valuable assistance. They can explain arbitration procedures and arbitration laws and interpret arbitration provisions.

The arbitration process generally involves many of the same components as a courtroom trial. For example, the parties call witnesses. They present evidence and argue about the application of the law. Many of these facets are simplified or limited, making the process quicker than the typical court case. For instance, parties may not have to follow state or federal rules of evidence.

After the hearing, an arbitrator or a panel of arbitrators will deliver a ruling to the parties within a specific period of time. Depending on the type of arbitration, the arbitrator's decision may be a final, binding decision. There may be options to appeal the arbitration award.

Arbitration vs. Litigation

Comparisons between arbitration and a traditional lawsuit are frequent. These comparisons will depend on the perspective of the person or company involved. Arbitration represents a streamlined and less expensive method of resolving a dispute between parties.

For consumers, however, this is only sometimes the case. When a minor legal issue doesn't involve much money, small claims courts can offer a quicker and inexpensive method for resolving a dispute. Paying for an arbitrator's time and the associated expenses might discourage a consumer from making a claim. This is true even though sometimes the parties may share costs.

The difference between arbitrators and judges is essential to consider, too. When you file a case in court, neither you nor the defending party get any input into who the judge will be. Judges sit by random assignment in cases. With arbitration, the parties often have some input into who the arbitrator will be. The process may permit both the complaining and responding parties to select from a pool of arbitrators. In the alternative, they may eliminate choices from provided options.

Arbitrators can also be required to be experts in the field or industry involved in a dispute, whereas a judge may or may not have such expertise. Conversely, this randomness and lack of selection can weigh in favor of litigation. Judges have no reason to worry about whether they will be picked to decide another case for the parties before them in court proceedings.

Another potential benefit of arbitration cases over going to court is that the proceedings are typically not part of the public record and may have more streamlined procedures and rules. These considerations may prove valuable for people seeking to resolve a dispute quickly and keeping the details private.

These are just some of the differences between arbitration and going to court. With the growing use of arbitration in employment, business, and other venues such as international arbitration, it's essential to learn about arbitration and related methods of ADR.

You Don't Have To Solve This on Your Own – Get a Lawyer's Help

Are you considering signing a real estate contract with an arbitration clause? Maybe you want to know more about the Federal Arbitration Act and how it applies to your arbitration matter. Meeting with a lawyer can help you understand alternative dispute resolution procedures and your state laws. Visit our attorney directory to find a lawyer who can offer you legal advice and help protect your rights.